Toys 'R' Us Sued as Tablet Wars Head to Court

Fuhu, the maker of the Nabi tablet for children, has filed a lawsuit against Toys "R" Us, the former exclusive seller of its device, after Toys "R" Us announced it is introducing its own branded tablet for children. The suit alleges trademark infringement, breach of contract, and misappropriation of Fuhu trade secrets as well as a failure by Toys 'R' Us to market and advertise the Nabi device as promised.

According to the lawsuit, filed in Federal Court in San Diego, Calif. today, Toys "R" Us "entered into direct competition with Fuhu, shamelessly using Fuhu's confidential information obtained after fraudulently becoming Fuhu's exclusive distributor in an agreement signed in October, 2011 … promising millions of dollars worth of marketing, merchandising, and sales." It further alleges that Toys "R" Us "leveraged its exclusivity on Nabi to simultaneously frustrate Fuhu's business by failing to market, merchandise, promote , and order in a commercially reasonable manner while preparing Tabeo."

Toys "R" Us announced two weeks ago that it will launch its own tablet designed specifically for children, called the Tabeo, on Oct. 21. It will be available exclusively in its stores, although online pre-orders are already being taken. Toys "R" Us was the exclusive retailer under a non-disclosure agreement (included as an attachment in the lawsuit) of Fuhu's Nabi when it launched in early November last year.

A Toys "R" Us spokeswoman said the company had not yet reviewed the suit and was unable to comment at this time.

As part of its lawsuit, Fuhu is seeking an immediate injunction to stop sales of the Tabeo.
"The launch of the Tabeo was too much of a wrongdoing for us to ignore. We felt we didn't have an alternative," said Fuhu CEO Jim Mitchell in a telephone interview. Toys "R" Us, he said, "took our first- generation Nabi concept and replicated it and copied it."

Fuhu has since created the Nabi 2 that it sells at retail in Walmart, Best Buy and GameStop, and online at Amazon, Target .com as well as its own web store.

The original Nabi was only available through Toys "R" Us last year. While Toys "R" Us told Fuhu after initial online orders that it hadn't seen that kind of frenzied activity since the launch of the Wii, it also didn't order in volumes consistent with that , Mr. Mitchell said in the interview, "for reasons we didn't understand then."

According to the lawsuit, Toys "R" Us "reported that pre-orders were coming in at the rate of 1,000 every three hours at the time it stopped accepting pre-orders, and that the demand would support sales of 20,000 Nabi units per day on the [Toys "R" Us] website." However, the suit later details that the total number of Nabis sold was only slightly more than that per-day promise.

Fuhu claims in the suit that it eventually pulled out of the agreement with Toys "R" Us in frustration over the retailer failing to properly market its product.